Severance Pay Could Be The Next Big Progressive Labor Cause

A New Jersey bill, sparked by the Toys R Us and Sears layoffs, would require large companies to pay off workers they're dumping.

The recent mass store closures at retail chains Toys R Us and Sears have spawned a campaign to guarantee severance pay to laid-off workers. Its backers now face their first big legislative test: a bill in New Jersey that would make severance a requirement for large employers.

If the proposal succeeds, similar bills will almost certainly pop up in other states, the way minimum wage laws and paid sick leave protections have spread across the country in recent years, particularly in blue states.

At least that’s the hope of workers like Bruce Miller. He lost his job as a Sears auto technician in 2018 when his store in Toms River, New Jersey, closed. He had 36 years with the company and received eight weeks of severance pay, an amount he believes should have been greater. He said severance should be mandatory and based on an employee’s length of service.

“Most workers put their heart and soul into the job,” said Miller, 56, who testified in favor of the bill last week. “Not getting severance after you’ve been there so many years, it’s a punch in the gut. It’s not fair to anybody out there.”

The New Jersey proposal, which was recently introduced in the state Senate, would assure laid-off workers one week of pay for every year they’d worked at the company, which would be paid out by the employer, not the state. Had such a law been in place when Sears was axing workers, Miller would have received roughly nine months of salary, rather than two ― a greater financial cushion for him and a greater cost for Sears.

The bill would make significant changes to the state’s mass layoff law, which is based on the federal WARN Act. In addition to the severance requirement, it would increase the amount of advance notice that employers must give workers before making cuts: from 60 days to 90 days. Employers who failed to give such a heads-up would have to pay a minimum of four weeks of severance to an affected worker, no matter how long the worker’s tenure.

The severance pay would come on top of the notice time during which the workers were still being paid, meaning the severance wouldn’t kick in until after the 90 days had passed. The law would apply only to companies that were laying off 50 or more employees, meaning smaller businesses wouldn’t be on the hook.

Even so, business groups say the proposal worries them. Michael Egenton, a lobbyist with the New Jersey Chamber of Commerce, said the mandatory severance provision might be hard for failing businesses to meet. He argued that employers might balk at expanding into New Jersey if there were more workplace mandates, noting also the recent passage of a law requiring a $15 minimum wage by 2024.

“Our bigger concern is everyone is entitled to severance regardless of the financial situation,” Egenton said, adding that he had industries other than retail in mind. “I wouldn’t want our members in the pharmaceutical bio industry to start getting nervous, wondering what happens if [they] have to move employees around.”

“Not getting severance after you’ve been there so many years, it's a punch in the gut.”

- Bruce Miller, a 36-year Sears employee who received just eight weeks of severance pay

As with the vast majority of states, severance pay is currently optional in New Jersey under most circumstances. Many companies therefore decline to offer any. Toys R Us, which was headquartered in Wayne, New Jersey, didn’t give store employees the severance they expected after it announced last year that the chain was shutting down. Only when workers organized and embarrassed the chain’s owners did they establish a severance fund.

The effort in New Jersey grew directly out of that Toys R Us campaign. Infuriated over the lack of severance, former Toys R Us employees began publicly protesting against the bankrupt company’s debtholders last year. They took on the name Rise Up Retail and began agitating for better protections for all retail workers who lose their jobs. The effort is backed by the Organization United for Respect, which has a history of organizing Walmart employees, and the liberal advocacy group Center for Popular Democracy.

Rise Up Retail has taken special aim at chains that were bought by private equity groups or hedge funds and later went bankrupt: Bain Capital and KKR in the case of Toys R Us and billionaire Eddie Lampert in the case of Sears. While all Toys R Us stores in the U.S. have closed, Lampert recently reached a deal to keep 425 Sears stores open.

Carrie Gleason, policy director at Rise Up Retail, said laid-off workers would be less reliant on unemployment benefits if they received a week of pay for every year they’d worked at a company. She also argued that investors might be less likely to close a struggling business and more eager to rescue it if shutting the doors required paying out severance. The owners of Toys R Us, she noted, rejected some offers to buy and reorganize the chain.

“If you could imagine where someone got three months’ notice [and] then a week of severance for every year, they would just about have enough [of] the real time it takes to find a job,” Gleason said. At chains like Sears and Toys R Us, she added, many workers were mid-career or older and suddenly found themselves having to start over while facing age discrimination.

As for whether her group will push for severance laws beyond New Jersey, “We’re already hearing from interested policymakers around the country,” Gleason said.

Scott Olson via Getty Images

Zach Herman, a researcher at the National Conference of State Legislatures, which tracks state legislation around the country, said New Jersey is the only state with such a proposal on the table so far this year. Maine, he noted, already has a similar severance law on the books, requiring a week’s pay for each year of service in mass layoffs, although only for employees with at least three years on the job. Several other states require severance only when the employer fails to give the legally obligated warning. (That’s the current law in New Jersey.)

The proposal has a good chance of passing in New Jersey, where Democrats control both chambers of the statehouse and the Democratic governor, Phil Murphy, has promised progressive reforms. Still, Egenton, of the state chamber of commerce, said he hopes a “middle ground” can be reached, with softer severance provisions to placate businesses. He also said he wouldn’t be surprised if employers fought the measure in court if it became law.

Bruce Miller said he hopes the bill passes as is. He worked on commission at Sears, and his earnings fell late in his career as the company’s business dropped off. He was already facing foreclosure when he lost his job, he said. If he’d had a week’s salary for every year he worked, Miller added, maybe he could have worked out arrangements with his lender rather than losing his home.

“We want to change the rules so that other people coming into this situation won’t have to go through this,” he said.

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